India Inc sees oil prices as major downside risk: Assocham

New Delhi: Crude oil touching $100 per barrel is perceived to be the biggest downside risk followed by unabated rise in Rupee value and signs of global slowdown, according to a CEO Survey by the Assocham Business Barometer (ABB) .

The Survey on Major Downside Risk to Indian Economy’ of 180 CEOs was carried out across various sectors during the week 29 October to 5 Nov.

Key Findings

* 81% felt that with limited options available, government may have to pass on burden of rise in oil prices to consumers

* Crude prices shot up from $77 per barrel to $97 per barrel in last three months on a combination of factors including growing demand from China, India and reduction in stock piles in US

*78% felt that the government has to pass on at least some burden n the consumer though it has elbow room to reduce taxes on import of crude and processing of fuel

*82% felt that with increasing crude prices, customs realization would have risen and government would not lose from the levels projected in the Budget for FY 2007-08

* Respondents felt that the government should not resort to issuing more bonds to oil companies on the ground that it would ultimately impact fiscal health of the government

* Most CEOs were jittery “living with" such high level of crude prices and felt that though inflation was contained at 3.07%, high energy prices could play spoilsport to India’s growth story

* 74% felt that higher energy costs resulting from rising prices of oil will hurt profit margins at small and mid-sized companies that are unable to pass them on to the consumers

* Although Rupee rise provided a cushion in terms of reduction in landed imported cost of oil, 66% felt that sharp appreciation of Rupee is the second most downside risk as far as unemployment in job-oriented export sectors is considered

* Export based sectors with low or nil import content including textiles, handicrafts, leather reported huge losses and drop in offshore sales because of strong domestic currency. More than two lakh workers in these sectors are estimated to have been laid off this fiscal. IT sector where more than 70% revenues come from offshore business, felt strong pressures on their margins due to weakening of dollar

* 89% CEOs felt that even as domestic sector is strong enough to drive growth rate, deep integration made it vulnerable to changes in major economies like US, Europe, Japan, China

* Rising oil prices would put more pressure on US economy which is already witnessing signs of recession. High energy prices will translate into high costs for industry and consumers and thus have a knock-on effect on other spendings

* 94% felt that strong steps should be taken by RBI to increase capital outflows from the economy. As many as 92% felt that global slowdown was the third most important downside risk to GDP growth of India